Recent Question/Assignment
Background Information
You are a CPA working for an accounting firm called AccPlus. One of your clients is Cairns Ltd. James Manning is the Managing Director of Cairns Ltd. He often contacts you for assistance regarding various accounting issues. Recently he has expressed some concerns over a number of current issues, as shown in the memo below, and he is seeking your professional accounting advice.
To: AccPlus
From: James Manning
Manager Director—Cairns Ltd
455 Smith Street, Notsureville, NSW, 2555
Date: 6June, 2014
Re: Accounting Issues
1. Advertising expenditure has been previously expensed as incurred in our company. Following extensive market research, the board of directors has taken the view that benefits from advertising expenditure in the form of product awareness and increased sales will be received by the company over a 4-year period following the expenditure. The board of directors has approved to change the accounting policy for the treatment of advertising expenditure in April this year (i.e. to record it as an asset rather than an expense). However, due to a recent fire and water damage to the company’s accounting records, details of the advertising expenditure in prior years have been destroyed.
a. (i)What guidanceor information does AASB 108 provide regarding the disclosures, if any, which are required for the change in accounting policy? Could you please provide an example of disclosures for change in accounting policy to assist my understanding?(ii)Based on the example you provide, critically analyse and evaluate to what extent the example meets the disclosure requirements for change in accounting policy as per AASB108?(Hint: you are required to choose a disclosure note for change in one accounting policyfrom the latest annual report of a company chosen by yourself, which is constituent of the ASX 200 index. You are required to attach the selected disclosure example in original layout as an appendix and use appropriate reference format.The example does not have to be the same change in accounting policy for advertising expenditure. ) (5 marks)
b. Could you please also help me prepare a draft of the disclosure note for the change in accounting policy for advertising expenditure for my company according to AASB 108?
(6 marks)
2. Australia has adopted the standards issued by the IASB as from 1 January 2005. I have been told by one of my colleagues that because of the principles-based nature of IFRS, accountants are required to applyprofessional judgementsextensivelyin preparing financial statements.Could you please explain what judgements or estimateswould be required in determining depreciationof non-current assets and how these judgements would be made?
(4 marks)
I would like to see appropriate references to support your advice.
Kind Regards
James Manning
PS. Your written advice regarding these issues would be appreciated.
Required:
Write a business lettergiving advice to James Manning, providing clear answers and explanations to each of the twoaccounting issues he raised in the memo.
*You need to choose a suitable company by yourself from: http://au.spindices.com/indices/equity/sp-asx-200 which
1. is constituent of the S&P/ASX 200 index;
2. publishes audited annual reports in English, fully complying with IAS/IFRS or AASB; and
3. does NOT belong to the financial sector.
Maximum length: 1,300 words?
You are a CPA working for an accounting firm called AccPlus. One of your clients is Cairns Ltd. James Manning is the Managing Director of Cairns Ltd. He often contacts you for assistance regarding various accounting issues. Recently he has expressed some concerns over a number of current issues, as shown in the memo below, and he is seeking your professional accounting advice.
To: AccPlus
From: James Manning
Manager Director—Cairns Ltd
455 Smith Street, Notsureville, NSW, 2555
Date: 6June, 2014
Re: Accounting Issues
1. Advertising expenditure has been previously expensed as incurred in our company. Following extensive market research, the board of directors has taken the view that benefits from advertising expenditure in the form of product awareness and increased sales will be received by the company over a 4-year period following the expenditure. The board of directors has approved to change the accounting policy for the treatment of advertising expenditure in April this year (i.e. to record it as an asset rather than an expense). However, due to a recent fire and water damage to the company’s accounting records, details of the advertising expenditure in prior years have been destroyed.
a. (i)What guidanceor information does AASB 108 provide regarding the disclosures, if any, which are required for the change in accounting policy? Could you please provide an example of disclosures for change in accounting policy to assist my understanding?(ii)Based on the example you provide, critically analyse and evaluate to what extent the example meets the disclosure requirements for change in accounting policy as per AASB108?(Hint: you are required to choose a disclosure note for change in one accounting policyfrom the latest annual report of a company chosen by yourself, which is constituent of the ASX 200 index. You are required to attach the selected disclosure example in original layout as an appendix and use appropriate reference format.The example does not have to be the same change in accounting policy for advertising expenditure. ) (5 marks)
b. Could you please also help me prepare a draft of the disclosure note for the change in accounting policy for advertising expenditure for my company according to AASB 108?
(6 marks)
2. Australia has adopted the standards issued by the IASB as from 1 January 2005. I have been told by one of my colleagues that because of the principles-based nature of IFRS, accountants are required to applyprofessional judgementsextensivelyin preparing financial statements.Could you please explain what judgements or estimateswould be required in determining depreciationof non-current assets and how these judgements would be made?
(4 marks)
I would like to see appropriate references to support your advice.
Kind Regards
James Manning
PS. Your written advice regarding these issues would be appreciated.
Required:
Write a business lettergiving advice to James Manning, providing clear answers and explanations to each of the twoaccounting issues he raised in the memo.
*You need to choose a suitable company by yourself from: http://au.spindices.com/indices/equity/sp-asx-200 which
1. is constituent of the S&P/ASX 200 index;
2. publishes audited annual reports in English, fully complying with IAS/IFRS or AASB; and
3. does NOT belong to the financial sector.
Maximum length: 1,300 words?
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